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Executive Overview: Jane’s World Airlines
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| 04 October 2006 |
Mature airline consolidation
A number of the world's larger airlines, having overcome regulatory, shareholder and employee hurdles, have begun a new wave of consolidation. Although this has manifested itself in a traditional way, it is the size of the mergers (usually through common ownership holdings) that are taking place and the fact that they are happening across all of the continents.
While in America, this trend has already been established for a number of years, following the earlier liberalisation of air services, barriers are now being overcome in almost all regions and have included: Japan Airlines / Japan Air System (October 2002), Air France-KLM (May 2004) and Lufthansa / SWISS (in progress); East Asia has seen the reorganisation of the biggest airlines in China (2002), while both Cathay Pacific and Air China are currently seeking ever-closer ties; in Southern Asia, Air India is considering the appointment of consultants to prepare a roadmap for the merger of Air India and Indian Airlines.
The consultant will also suggest whether to launch and Initial Public Offering (IPO) of the merged airline; in Oceania, in 2003, Qantas and Air New Zealand were refused a deal that would have seen the former take a significant stake in the latter. In other areas such as Latin America, airlines have been forming or developing their own regional affiliates such as LAN in Chile, GOL in Brazil and Aerolineas Argentinas in Argentina.
Fuel costs
Airlines continue to grapple with the cost of fuel, with ICAO reporting that crude oil production reached a 20-year high in 2005 and that prices continued to rise. Many airlines are reporting that their internal cost saving strategies are been nullified by fuel costs, especially where they do not have some form of fuel hedging policy in place. According to most of the major *US carriers (reporting in their 2005 annual reports), most had little or no fuel hedging in place for 2006 (figures varied from 0% - UAL and Northwest for instance to Southwest Airlines <85%).
One of the alternative (and on the face of it simpler) options is to raise ticket prices and/or invoke fuel surcharges. With a predominantly price-conscious customer base, however, this is a delicate balancing operation. Improving load factors allow, in some instances, airlines to increase prices and therefore revenues offsetting some of the extra costs incurred.
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© 2006 Jane's Information Group
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